Trade war reality sinks in

By Colin Twiggs
May 31, 2019 11:30 p.m. EDT (1:30 p.m. AEST)

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Realization that we are slipping into a trade war is starting to sink in.

The S&P 500 broke medium-term support at 2800, warning of a correction. The target is primary support at 2400. Volatility is flashing an amber warning, above 1.0%.

S&P 500

Nymex crude is plunging as anticipated global demand falls.

Crude Oil

Long-term Treasury yields are falling, with the 10-Year headed for a test of support at 2.0%. The Yield Differential (purple line) is back below zero, warning of a recession.

Yield Differential: 10-Year and 3-Month Treasuries

As I have mentioned earlier, a negative yield curve is a reliable early indicator of recession but trouble is imminent when it recovers above zero. Normally caused by the Fed cutting interest rates in response to falling employment growth. The critical indicator to watch is non-farm payroll growth. When that falls below 1.0% (right-hand scale), watch out!

Employment Growth and Fed Funds Rate
War is an evil thing; but to submit to the dictation of other states is worse.... Freedom, if we hold fast to it, will ultimately restore our losses, but submission will mean permanent loss of all that we value.... To you who call yourselves men of peace, I say: You are not safe unless you have men of action on your side. ~ Thucydides (circa 400 BC)

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Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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